HOLIDAYMAKERS who flocked to the resorts of the beautiful Dalmatian coastline every summer during the 1980s - and this included many Scots - would have, at the time, considered it inconceivable that within just a few years this region would be embroiled in a bloody, and brutal, civil war.
The violent break-up of Yugoslavia effectively put Croatia - the federation's main tourist destination - off the map for ten years. Fortunately, not only has peace returned but Croatia now has a democratic system of government which has given property rights to national citizens and foreigners alike.
Given the recent troubles, actually identifying and securing title may take a little longer when buying a property in Croatia than it would elsewhere - particularly where original owners may no longer live there.
Even before starting the process, potential buyers should be aware of the "proof of reciprocity", without which it is impossible for a non-Croatian citizen to purchase a property. Any foreigner is entitled to buy property in Croatia, just as long as they are domiciled in a country that reciprocates by permitting Croatian citizens to do the same. For UK citizens this should be a formality; nevertheless the process can sometimes take from six to 12 months. The appropriate certificate is obtained from the Croatian ministry of foreign affairs. It is also necessary to submit the contract for purchase with the application.
An alternative is to set up a company to buy the property. As this company will be registered in Croatia, it will be considered Croatian and no proof of reciprocity will be required. The set up costs are likely to exceed £1,000, and there will be ongoing administrative requirements and costs.
Otherwise, buying in Croatia is no more complicated than in France or Spain. Once you find a property you wish to buy, the two parties sign a reservation contract which gives purchasers two to three weeks to check out title and other issues without final commitment. If satisfied, the next stage is a "preliminary contract", which, despite its name, is more or less a binding commitment to purchase.
The purchaser will then be required to pay a deposit of 10 per cent, maybe higher if the property is new-build. As always, it pays to secure the services of a local English-speaking lawyer.
To register the title, a Croatian tax number and bank account will be required.
Total costs should amount to around 8 per cent of the purchase price and this includes a property tax of 5 per cent. Tax on rental income is currently 15 per cent. If you sell within three years, a further charge to
income tax is payable on any gain.
If the owner should die in possession, then children are not liable for
inheritance tax. It must be remembered that, whatever the tax rules in Croatia, a UK resident and/or domiciled person will still require to make returns, and pay tax, in the UK.
North and south of Croatia, in the former Yugoslav republics of Slovenia and Montenegro, the processes are roughly similar, although levels of taxation differ.
Another Balkan country, Bulgaria, has become the "new Spain" for many British investors. The system is similar to that of Croatia with one significant difference - a non-resident cannot own land. Anyone wishing to buy will need to set up a Bulgarian-registered company.
? Graham Scott is a partner in Murray Beith Murray, WS, solicitors and asset managers.
